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Harmonic Rotation Pullback and Continuation Moves After A Large Move For the S&P500 Emini (#ES_F)

After doing my Harmonic Rotation Study for the ES, I wanted to test a hypothesis that once we have a large move, which I will define as anything larger than 2 standard deviations above the mean (1.75 points in this case), how much of a pullback will we get once that move is finished, and then how large is the continuation move after the pullback? My theory is that such a large move should result in a smaller pullback given the amount of strength for the initial move, then the continuation after the pullback should be larger than average as traders carry the trade on in the same direction.

Here’s my study:

The 1st set of data is the pullback move, or what move we get after a move larger than 2 standard deviations. I calculated the frequency of the size of each move, averaged it against the sample size to get a percentage of how often a move of that size happened. I then compared that percentage against what the normal percentage was to determine if there was a statistically significant difference between the 2. As you can see, there is a slight increase in the likelihood of the move being smaller than average, but only by 3%, not enough of an edge in my mind.

I also did the same for the next rotation after the pullback. The data shows that there is a slightly higher chance of a larger move, but again, not enough of a difference to really make a trading edge.

The pitfall of this study is it only takes the next 2 harmonic rotations. And since the distribution is so heavily weighted to the lower end, it makes sense that there isn’t much of a difference here. However the next part of my study will look at the cumulative sum of the next N rotations to see if the move is likely to continue in that direction, even if it takes more than 1 rotation.

4 responses to “Harmonic Rotation Pullback and Continuation Moves After A Large Move For the S&P500 Emini (#ES_F)”

Hi Shane,
I’ve come across your blog a few times now, i use FT71 as a mentor and noticed you follow some of his work too.
I also noticed you’re better at excel and deciphering through data than me. I can teach myself but its not my forte. Shane I’ve been working on a trading idea for a year, its very simple, its based on harmonic rotations, with a twist. I need someone’s opinion as well as thoughts (2 minds being greater than 1). I’ve got to the stage now where i just need someone to work with to see if this idea can actually work and if so what edges can we get out of it. Would you be interested in having a look and seeing if we can make something of it ?. let me know. cheers

Hi Ryan. You can send me a message via the form at the bottom of the NinjaTrader Programming page. That way I will privately get your email address. Send me the idea you are thinking of and I’ll take a look at it, but I am quite busy these days so I can’t guarantee anything.